CMA Intermediate · Financial Management and Business Data Analytics · Sources of Finance
Which of the following is classified as a long-term source of finance that is also an internal source for a company?
Retained earnings are both internal and long-term. They come from profits the company has kept back rather than distributed, so no outside party is approached, and the funds stay invested permanently. Debentures are external, and trade credit and overdraft are short-term external sources.
- ADebentures issued to the public
- BRetained earningsCorrect
- CTrade credit from suppliers
- DBank overdraft
Explanation
Retained earnings are generated from within the business out of accumulated profits and remain invested for the long term. Debentures are external long-term finance, while trade credit and bank overdraft are external short-term sources.
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